Taiwan’s central bank board member does not rule out further rate hike

Taiwan’s central bank board member does not rule out further rate hike
Taiwan’s central bank board member does not rule out further rate hike

Taipei, May 4 (CNA) A board member of the Central Bank of the Republic of China (Taiwan) has not ruled out the possibility of raising interest rates again if Taiwan’s inflationary pressure continues, according to the minutes of the latest quarterly policymaking meeting held in March.

The meeting minutes released on Thursday showed the board member said Taiwan’s consumer price index (CPI) growth hit almost 2 percent or top the 2 percent mark, the alert level set by the central bank, in recent years and a hike in electricity rates in April even added to the inflationary pressure.

The board member said that if inflation remains sticky, the central bank should continue to raise its key interest rates, warning that without any further move to cap inflation, the situation could get out of control.

After the CPI rose 1.97 percent in 2021, the index growth hit 2.95 percent and 2.49 percent, respectively, in 2022 and 2023.

In the first quarter of this year, Taiwan recorded a 2.34 percent increase in the CPI.

The central bank has forecast Taiwan’s CPI growth will also top the 2 percent mark to reach 2.16 percent in 2024.

In a surprise move, the central bank turned hawkish by increasing interest rates by 12.5 basis points after concluding the quarterly policymaking meeting on March 21, citing the impact from higher electricity bills as a reason behind the rate hike.

The decision to hike interest rates came after three consecutive quarters in which the central bank left rates unchanged. After the rate hike, the benchmark discount rate hit a 15-year high of 2 percent.

In a news conference after the policymaking meeting, Yang Chin-long (楊金龍), governor of the central bank, admitted the interest rate hike was a “surprise,” but an “appropriate” preventive measure at a time of an average of 11 percent hike in electricity rates.

Another board member was cited for the minutes as saying the central bank should continue to demonstrate its determination to combat inflation, adding that at a time of a strong US dollar, a rate hike is expected to assess the pressure on Taiwan’s depreciation.

According to the minutes, another board member said the high CPI growth in Taiwan largely came from higher dining out costs and a continued increase in rents.

The board member said since mid-2022, the year-on-year rent growth has hit about 2 percent every month, which has led food vendors to raise product prices, boosting dining out expenses.

The board member approved a 12.5 basis point hike in interest rates at the March meeting, but said if a rate hike went beyond 12.5 basis points, landlords could raise rents further to make inflation worse.

According to the Directorate General of Budget, Accounting and Statistics, the rent index rose 2.24 percent from a year earlier to a new high of 105.57. The March growth was the highest in 12 months.

Another board member said that due to inflation, Taiwan saw real interest rates after inflation adjustments falling to negative territory and there were needs for the central bank to raise interest rates in March to push up real interest rate to return to positive territory.

Among the 15 board members attending the March policymaking meeting, 14 voted for a rate hike of 12.5 basis points. Economics Minister Wang Mei-hua (王美花) was the only one opposing the rate hike.

The minutes quoted Wang as saying industries in Taiwan had been polarized as some got a boost from emerging technologies including artificial intelligence development and reported export growth, while others such as smartphone related supplier and non-AI server makers were still feeling the pinch from the weakness in global demand.

Wang said an increase in electricity rates have raised operating costs for local manufacturers and a rate hike was expected to make the business environment worse.

Another board member who supported a rate hike to take on inflation in the March meeting said higher interest rates could affect some industries so a decision on the latest rate increase has placed the central bank in a difficult situation.

(By Pan Tzu-yu and Frances Huang)

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